4 ms·

What catalyst could be bigger than covid ? I simply cannot imagine an economic hit bigger than covid. If this can’t crash stock prices nothing can.

adam_arthur 6y ago
Covid did cause the market to crash. It was one of the fastest crashes in stock market history. However, the federal reserve and government acted in tandem to enact the swiftest and largest economic response to an event like this in history. That's what drove the turnaround and led to the subsequent (and ongoing) bull market. However, the market is much frothier now (in certain segments) than before covid hit. For example, Tesla's value has increased by 10x from the March lows. Tesla is being priced as if it will be a near monopoly on both car sales and the self driving market, which is pretty clearly not true. Even though it may take legacy automakers or Apple a few years to catch up. There are less levers to pull than before. Interest rates are close to 0, congress has already passed trillions in new spending. Ability to counter a second dip will be more limited than before. A catalyst would be something like accounting fraud being uncovered in one of the growth stock darlings (ala Enron), or perhaps Tesla simply reporting numbers far below expectations. Volkswagen EVs are outselling Tesla in Europe for example, so the bull thesis of a monopolistic market position is a bit weak. Another catalyst could be unexpectedly high inflation, which would indicate the Federal reserve may raise rates soon. It's also entirely possible the market just trades close to flat for a few years until valuations level out into something more realistic. Is it possible that we're in a "new normal" where stocks are just valued higher than historical norms in perpetuity? Maybe, but when things look this frothy, the "new normal" thesis generally doesn't pan out.
- milkytron 6y ago
  > Tesla is being priced as if it will be a near monopoly on both car sales and the self driving market, which is pretty clearly not true. It's unlikely that Tesla will be a car sales or self driving monopoly... but their charging network is by far the best, and they allow other manufacturers to use them. I think this, in addition to the car sales, self driving, and massive speculation is what is causing the stock price to be where it is.
  - adam_arthur 6y ago
    If they execute well and diversify enough, their valuation could become warranted in some years. However, I think it's likely that regulation will eventually prevent vendor lock-in/monopoly around charging stations. Imagine you could only go to some subset of gas stations, depending on which manufacturer you got your car from?
jariel 6y ago
COVID is a temporary shock. It's a dump on 1 years earnings, that everyone feels they can 'write off'. Investors/Fed/Gov may not see it as a secular shift. So as soon as they see light at the end of the tunnel, then it's 'a matter of time to normalcy' so a rush to get back into the money. A major war would be a different thing because it could mean a secular shift in the system. A massive housing bust as well, because nobody knows what comes afterwards.
- Apocryphon 6y ago
  And what if COVID turns out not to be a temporary shock? Say worse strains mutate, vaccines fail, or another new disease catches on.
  - imtringued 6y ago
    Well, it's pretty obvious. If the disease wins it wins. It will kill people and that's all there is to it. Young people will argue that the victims were older people who had less lifespan left than them. It will also help with aging populations, retirement schemes and free up the housing market. Economically it might not be significant at all. I personally don't like to see people dying, I would want them to live a little bit longer even if they are a burden to me.

adam_arthur 6y ago

Covid did cause the market to crash. It was one of the fastest crashes in stock market history. However, the federal reserve and government acted in tandem to enact the swiftest and largest economic response to an event like this in history. That's what drove the turnaround and led to the subsequent (and ongoing) bull market. However, the market is much frothier now (in certain segments) than before covid hit. For example, Tesla's value has increased by 10x from the March lows. Tesla is being priced as if it will be a near monopoly on both car sales and the self driving market, which is pretty clearly not true. Even though it may take legacy automakers or Apple a few years to catch up. There are less levers to pull than before. Interest rates are close to 0, congress has already passed trillions in new spending. Ability to counter a second dip will be more limited than before. A catalyst would be something like accounting fraud being uncovered in one of the growth stock darlings (ala Enron), or perhaps Tesla simply reporting numbers far below expectations. Volkswagen EVs are outselling Tesla in Europe for example, so the bull thesis of a monopolistic market position is a bit weak. Another catalyst could be unexpectedly high inflation, which would indicate the Federal reserve may raise rates soon. It's also entirely possible the market just trades close to flat for a few years until valuations level out into something more realistic. Is it possible that we're in a "new normal" where stocks are just valued higher than historical norms in perpetuity? Maybe, but when things look this frothy, the "new normal" thesis generally doesn't pan out.

milkytron 6y ago
> Tesla is being priced as if it will be a near monopoly on both car sales and the self driving market, which is pretty clearly not true. It's unlikely that Tesla will be a car sales or self driving monopoly... but their charging network is by far the best, and they allow other manufacturers to use them. I think this, in addition to the car sales, self driving, and massive speculation is what is causing the stock price to be where it is.
- adam_arthur 6y ago
  If they execute well and diversify enough, their valuation could become warranted in some years. However, I think it's likely that regulation will eventually prevent vendor lock-in/monopoly around charging stations. Imagine you could only go to some subset of gas stations, depending on which manufacturer you got your car from?

jariel 6y ago

COVID is a temporary shock. It's a dump on 1 years earnings, that everyone feels they can 'write off'. Investors/Fed/Gov may not see it as a secular shift. So as soon as they see light at the end of the tunnel, then it's 'a matter of time to normalcy' so a rush to get back into the money. A major war would be a different thing because it could mean a secular shift in the system. A massive housing bust as well, because nobody knows what comes afterwards.

Apocryphon 6y ago
And what if COVID turns out not to be a temporary shock? Say worse strains mutate, vaccines fail, or another new disease catches on.
- imtringued 6y ago
  Well, it's pretty obvious. If the disease wins it wins. It will kill people and that's all there is to it. Young people will argue that the victims were older people who had less lifespan left than them. It will also help with aging populations, retirement schemes and free up the housing market. Economically it might not be significant at all. I personally don't like to see people dying, I would want them to live a little bit longer even if they are a burden to me.